Cryptocurrencies: A Double-Edged Sword for India

By: Silica Mangal, BA Hons Philosophy(2nd year), Roll No.:308

Introduction
Cryptocurrency includes a digital currency that is secured through encryption. They are the
very vehicles of change and exchange in the world finance arena. The very decentralization
of these currencies withdraws the intermediaries from traditional banks, thus helping to
attract a great amount of attention and investment capital. However, given that
cryptocurrencies are rapidly growing these days, concerns over how such assets are going to
be regulated and any risk investments have been raised in India. In this review, we discuss
the various aspects of cryptocurrencies, namely, origins and evolution, risk and rewards, and
the impact on the Indian financial systems.

The Origins of Cryptocurrencies

The term digital currency finds its genesis in the 1980s. However, the notion of digital
currency became popularized in the early 2000’s. The first cryptocurrency ever invented was
Bitcoin which was created in 2009 by Satoshi Nakamoto who is a mysterious individual or
organization. The blockchain technology (distributed ledger system) of bitcoin makes
possible safe, reliable, and distributed transactions.
Some coins endorse localization for specific regions instead of generality. The popularity of
bitcoin has triggered the emergence of countless other coins and their associated
technologies. One such example is Ethereum which facilitates the use of smart contracts on
its platform enabling the development of applications known as dapps. Examples of other
current coins are Ripple, Litecoin and Binance coin.

The Growth of Cryptocurrencies

The rise of the digital coins has been astounding in recent times. The capitalization of the
market of digital currency boom has jumped in the scope that it has drawn a considerable
level of investment from individual persons, organizations and even governments. Some of
the reasons behind this persistence expansion include:
 Decentralization: Cryptocurrencies provide a way to transact in an open and virtual
economy which is devoid of any government control or such restriction which
directly means limiting the obligations to third parties in making such transactions.
 Security: Thanks to blockchain technology, verification of transaction involving the
virtual currencies is secured making them highly resistant to fraud or blocking.
 Accessibility : In the aspect of availing this technology to the users, it only requires
internet connection where interested people can access the digital currency
irrespective of where they are located or even their economic background.
  Speculative returns: Many investors have contacted the digital cash market as the
room for price appreciation is exotic.

Risks and Returns

In spite of the many advantages that cryptocurrencies present, they also pose notable
threats. A few of the common risks of cryptocurrencies consist of:
 Volatility: The value of cryptocurrencies can rise or fall dangerously over a short
period of time resulting in extreme profit or loss.
 Prices manipulation: Since the cryptocurrency market is still visible small, there are
possibilities that large players or groups can easily control the market.
 Cybersecurity risks: Since cryptocurrencies are often stored in virtual wallets or on
internet-based exchanges, they are prone to hacks and other internet crimes
resulting in loss of money
 Legal risk: A situation where an investment exists able to attract change from new
legislation or policies in a particular country.
Moreover, investment in cryptocurrencies promises extreme risks as well. People, who
managed to recognize a good charge on investment and bought desired cryptocurrencies,
have got their worth benefits. All things considered; however, it is worth noting the need to
invest in cryptocurrencies with restraint and with a long investment horizon.

Challenges for India

Given its massive demographics and burgeoning economy, the country offers a great market
to the cryptocurrency industry. On the other hand, there are also different issues that the
country has to contend with as far as regulation and usage of cryptocurrencies is concerned:
 Lack of clarity: There is contradiction in regulation of cryptocurrencies in India owing
to different government agencies offering different regulations. This uncertainty
presents a risk to investors and companies.
 Issues with taxation: The issue of taxation on cryptocurrencies in India is quite
convoluted and open to varying interpretations which may result in conflicts and
added compliance costs.
 Issues of security: With a population of over a billion people and a rapidly increasing
use of the internet, India becomes susceptible to attacks aimed at cryptocurrency
exchanges and wallets.
 Social and economic implications: Rapid change in cryptocurrency penetration in the
society of India is bound to have many social and economic effects such impacts on
the already existing banking system and monetary policies and financial inclusivity.

The Role of Blockchain Technology

Cryptocurrencies are based on a technology called a blockchain, which has many
applications outside finance and could transform different industries. Some of the
interesting examples of the blockchain technology application are:
  Tracking and tracing: With the help of ethernet, it is possible to keep records on the
movement of goods and substances.
 Medical records: By utilising blockchain technology, medical records can be safely
exchanged over the Internet.
 E-Governance: Technology is used to facilitate government activities thus cutting
down on corruption.
 Digital rights management: It can be used to enforce copyright laws and to control
piracy.

India's Approach to Cryptocurrencies

India has exercised caution while looking at cryptocurrencies, with the administration facing
hurdles in the regulation of an ever-advancing technology. In 2018, the Reserve Bank of India
(RBI) issued a circular prohibiting banks from engaging with the organisations related to
crypto-moneys. However,
this ban was revoked by the Supreme Court of India, allowing for the possible acceptance of
cryptocurrencies in the country.
However, despite the Court’s decision, there are still significant gaps in regulation addressing
cryptocurrencies in the region. As such, the Cabinet has been seeking several alternatives, a
central bank digital currency CBDC being one of them, in order to manage the influence of
the crypto market.

The Future of Cryptocurrencies in India

India faces significant challenges in providing a forecast on the future of cryptocurrencies as
majority of the opinions present appreciate the fact that this country has to make a
leveraging use of this technology. As the backdrop of the Indian economy becomes less
ambiguous, it is predicted that the role of cryptocurrencies would attain more prominence in
the Indian economy.
Yet, for India it would be prudent to be very careful towards the use of cryptocurrencies and
build the necessary walls to curb excessive speculation and other negative aspects. Finding
the right balance between creative juices and regulatory compliance, India can be the best
market for cryptocurrency trade the world over.

Conclusion
Cryptocurrencies have revolutionized the financial systems across the globe and in doing
presenting numerous opportunities and challenges. The positive factors include the aspects
of decentralization and innovative possibilities of the cryptocurrencies, while the darker side
includes the risks the users are exposed to and the legal frameworks formulated to control
them. Due to its enormous population and rapidly developing economy, India could be on
the forefront of the worlds cryptocurrencies in the days to come. Even so, the concern is that
the nation will have to find its way around such issues and find better ways in which
regulative measures could be put in place in order to partake in the advantages of
cryptocurrencies and avoid the dangers associated with them.
References
 Bitcoin: A Peer-to-Peer Electronic Cash System (2008). Satoshi Nakamoto.
 Cryptocurrencies: A Primer (2018). International Monetary Fund.
 The Cryptocurrency Handbook (2019). Brian Hoffman and Michael J. Casey.
 Cryptocurrencies and Blockchain Technology: A Primer for Policymakers (2019). World
Bank.
 India's Cryptocurrency Conundrum (2021). The Economist.